Circular LISOL 1 - 94. CONAU 1 - 158. OPRAC 1 - 373. Valuation of holdings of national public securities held in investment or available-for-sale accounts

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
__________________________________________________________________ COMUNICACION " A " 2266 I 14/11/94 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 94.
CONAU 1 - 158.
OPRAC 1 - 373.
Valuation of holdings of national public securities held in investment or available-for-sale accounts.

We address you to inform you that this Institution has adopted the following resolution:

"1. Establish that holdings of national public securities with quotations on stock exchanges or securities markets of the country and/or abroad shall be classified into:

• investment accounts,
• available for sale, and
• for trading or intermediation operations.

Holdings that financial entities maintain in investment accounts or available for sale shall be valued accounting-wise in accordance with the following provisions:

1.1. Maintenance of holdings of national public securities in investment accounts or available for sale.
The entity that decides to account for securities in investment accounts or available for sale must maintain them for a minimum period of 1 year or 3 months, respectively, counted from their incorporation into the relevant holdings, for which effect it will be required to comply with the requirements contained in points 1.2. or 1.3., as applicable, to support the securities for the entire duration of their validity and to observe what is provided in point 1.5.

1.2. Financing capacity for holdings in investment accounts.
1.2.1. It will be understood that there is financing capacity to maintain holdings of national public securities in investment accounts when the entity has at all times resources from third parties in general (debt securities, time deposits in national and foreign currency and in national public securities, lines from abroad, etc.), with the exception of those resulting from the placement of subordinate debt issues that have been or are intended to integrate the computable equity responsibility, whose duration is at least similar to that of the national public securities included in them. To this effect, it will be admitted that liabilities register a mismatch (by shorter duration) of up to one year in term with respect to the duration of the public securities incorporated into said holdings.

For the purposes of determining this financing capacity, it must be taken into account that:
1.2.1.1. they must be grouped separately:
a) holdings in investment accounts of public securities included issued in national currency with liabilities denominated in that species. b) holdings in investment accounts of public securities included issued in foreign currency with liabilities denominated in that species.
To this end, it will also be admitted to consider the financing capacity in national currency.
At the same time, within each of these two groups, subsets must be integrated that consider separately:
i) the public securities included and fixed-yield liabilities. ii) the public securities included and liabilities whose yield is variable.
To homogenize securities and/or liabilities denominated in different currencies and/or character of the yield - fixed or variable - it will be admitted to consider forward (or term) contracts or options duly instrumented that provide, according to the mismatches that arise and for the entire duration of these public securities and/or liabilities, coverage in terms of exchange rate risks between currencies and interest rate risks. It will also be admitted to consider, for determining financing capacity, option contracts that provide liquidity coverage - in amount and yield - for the entire duration of the public securities included, provided that they experience similar variations in value - in inverse sign - to those presented by the securities being backed, in the face of changes in market interest rate levels and/or currency exchange rates. The contracts referred to in the two preceding paragraphs must be contracted with local financial entities whose rating is "L3" or higher - according to the minimum guidelines contained in the Annex to Communication "A" 2229- and/or with foreign counterparties that have a rating of "A" or higher, according to Moody's Investors Service or Standard & Poor's Corporation.

1.2.1.2. the early purchase or cancellation of the liabilities referred to in point 1.2.1. is not admitted, as long as they are affected to form the required financing capacity.

1.2.1.3. the term to be considered for the effects indicated in point 1.2.1. will be the corresponding to the weighted average useful life ("duration") resulting from weighting the number of days intervening between the date on which the term calculation is made and the maturity of each of the future services to be received, as capital and interest, as applicable, by the proportion that represents the economic value of each of them in relation to the economic value of the instrument. The economic value of the instrument will be understood as the net present value of future cash flows, discounted at its internal rate of return.

1.3. Holdings of national public securities available for sale.
The margin admitted for this purpose will be 100% of the computable equity responsibility of the last day of the second month prior to the one corresponding.

1.4. Application of provisions on funding of operations.
The determination of holding margins in accordance with the guidelines defined in points 1.2. and 1.3. is independent of the attribution of both types of holdings to the different sources of support, which will be carried out in accordance with the pertinent current regulations on funding of operations.

1.5. Adoption of the decision to maintain holdings of national public securities in investment accounts or available for sale.
The decision to maintain both classes of holdings must be adopted by the Board of Directors or equivalent body or authority of the entity and communicated, by note, to the Superintendence of Financial and Exchange Entities and to the external auditor within fifteen calendar days from when it was adopted by the entity, in which information will be provided on the determination of the financing capacity or margin affected by computable equity responsibility.

1.6. Operations of transfer of national public securities.
The de-designation of the included national public securities - without observing the minimum term referred to in point 1.1.- from holdings in investment accounts or available for sale will be admitted, provided they are destined to carry out transfer operations.

1.7. Accounting valuation criteria.
Holdings of national public securities with quotations that are maintained in investment accounts or available for sale will be adjusted to the following valuation regime:

1.7.1. Holdings in investment accounts.
They will be accounted for at their cost value - taking into account what is provided in point 1.9.- increased exponentially based on their internal rate of return and the time elapsed since their incorporation into these accounts.

1.7.2. Holdings available for sale.
They will be recorded according to the quotation value in accordance with current regulations for public securities held for trading or intermediation operations.
The valuation criterion used with respect to these holdings will be disclosed in a note to the quarterly and annual financial statements.

1.8. Accounting exposure.
1.8.1. Holdings in investment accounts.
They will be disclosed separately, according to the currency of issuance of the included public securities, in accounts named "Public Securities - Holdings in investment accounts".
The de-designations of these holdings for the carrying out of transfer operations will be made at the accounting value referred to in point 1.7.1. The reincorporations will be recorded at said value on the date they are finalized.

1.8.2. Holdings available for sale.
These holdings will be disclosed in the same manner as indicated in point 1.8.1. in accounts named "Public Securities - Holdings available for sale".
The net amount of the difference (negative or positive) between the quotation value at the close of each balance sheet and the cost value - taking into account what is provided in point 1.9.- will be disclosed in an account enabled for this purpose in the "Net Equity" chapter, after profit reserves and before unassigned results, named "Unrealized valuation difference of holdings of public securities available for sale", which may show a debit or credit balance depending on whether the difference is negative or positive. Consequently, this difference will not be reflected in the income accounts.

1.8.3. Forward purchases linked to transfer operations.
They will be accounted for separately, according to the currency of issuance of the included public securities, in "Other credits for financial intermediation - Forward purchases of public securities for transfer operations with holdings in investment accounts" or in "Other credits for financial intermediation - Forward purchases of public securities for transfer operations with holdings available for sale", according to the attribution registered by the securities de-designated for the carrying out of the sale in the corresponding spot operation, being recorded at the quotation value of the traded securities or, if applicable, the purchase price of the Central Bank. The difference between the cost value, plus its increase - according to point 1.7.1.-, of the securities de-designated from the holdings in investment accounts for the sales to carry out these transfer operations and the quotation value of the traded securities or the Central Bank's purchase price, will be reflected until the settlement of the forward purchase in "Other credits for financial intermediation - In national or foreign currency (as applicable) - Forward purchases of public securities for transfer operations with holdings in investment accounts - Valuation difference", when the security de-designated for the carrying out of the sale in the corresponding spot operation comes from investment accounts.

1.8.4. Other concepts.
In aspects not expressly contemplated in this point (premiums, usable quotations, etc.), the criteria contained in the current general accounting regulations will be applied supplementarily.

1.9. Validity.
These rules will apply with respect to incorporations to holdings in investment accounts or available for sale that are made with effect from 10/01/94.
When national public securities acquired prior to that date or, if applicable, on the date the decision is adopted are incorporated into holdings, the quotation in the market where the included public securities are traded that is registered at the close of operations on the day prior to the date of incorporation into these holdings will be considered as the cost value.

1.10. Non-compliance.
The non-effectuation of forward purchases linked to transfer operations or the sale - except that originating in transfers - of the securities affected to holdings in investment accounts that occur before the minimum period of one year has elapsed (point 1.1.) will determine the obligation to pay a charge calculated based on the rate fixed by the Central Bank for active transfer operations. This rate will be applied to the greatest positive difference that, during the period from incorporation until derecognition, has been registered between the accounting value and the quotation value, considering for this effect the values at the end of the month and the holdings that have been alienated. This difference will be multiplied by the number of months in which the aforementioned holdings have been maintained, considering fractions of a month as a complete period. In addition, it will be necessary to recalculate extra-accountingly the computable equity responsibility from the month in which the holdings were incorporated into the investment accounts. The adjustment will be made exclusively in the months in which, with respect to the part of the holding that has been alienated - with the scope defined in the previous paragraph -, the difference between the accounting value registered at the end of each month and the quotation value on that date is positive, decreasing the computable equity responsibility by an equivalent measure. The new amount of this will be used for all effects provided in the different provisions that consider it as a base (integration of minimum capital, technical ratios, etc.) with the consequent implications in terms of charges and interest for its late entry.

2. Consider that, for the purposes provided in point 1. of the present resolution, it corresponds to assign to the "Rural Mortgage Certificates" and to the "Special Mortgage Certificates" issued by the Banco de la Nación Argentina the treatment of national public security.

3. Substitute, with effect from November 1994, the first paragraph of point 3.1. of Chapter VI of Circular LISOL - 1 (text according to Communication "A" 2223), with the following:
   "3.1. Determination. Computable concepts.
   The computable equity responsibility of financial entities, for the purposes of the regulatory norms of the prescriptions of articles 30 and 32 of Law 21.526 and other provisions of the Central Bank that refer to this concept, will arise from the following expression:
   RPC = PNb + PNc - Cd - D - Vd where
   RPC : Computable equity responsibility
   PNb : Basic net equity, including the effect of the balance of the account "Unrealized valuation difference by holdings of public securities available for sale".
   PNc : Complementary net equity, not exceeding 100% of PNb Cd : Accounts to be deducted according to point 3.2. of Chapter VI of Circular LISOL - 1 and complementary norms.
   D : 50% of the positive amount of the re-expression of non-monetary assets, except that they be concepts included in Cd - net of the amortizations attributable to them -, generated from the balances as of July 1993, to the extent that the assets are maintained in equity.
   Vd : Total positive difference between the lower value of the securities and the lower value of the pertinent liabilities - measured with respect to their accounting valuation, according to point 1.7.1. of the resolution disseminated by Communication "A" 2266 -, originating from variations in the level of market interest rates, when that difference is greater than 3% of the computable equity responsibility of the month prior to the one corresponding, in cases where an admitted mismatch exists in the duration of assets and liabilities (point 1.2.1. of the resolution disseminated through Communication "A" 2266)".

4. Provide that, as long as the deduction referred to in the term "Vd" is practiced, for the purposes of determining the computable equity responsibility, and a balance is verified in the account "Unrealized valuation difference by holdings of public securities available for sale", the algebraic sum of the amounts of these concepts corresponding to the month coinciding with the end of the annual exercise will affect the distributable balance of the pertinent draft distribution of profits.
   For the purposes of the sum, the value of "Vd" and the debit balance of the aforementioned valuation difference account will be considered with a negative sign, while the credit balance of this will be taken with a positive sign. The amount of the sum, whether negative or positive, will be deducted or added to the distributable result.

5. Establish, with validity from October 1994, that for the purposes of determining the global net position in foreign currency, financial entities must:
   5.1. exclude assets and liabilities denominated in foreign currency with respect to which contracts of options whose economic and financial value determines the convenience of exercising them or forward (or term) that, in both cases, imply transforming these concepts to national currency are available.
   5.2. include assets and liabilities denominated in national currency with respect to which contracts of options whose economic and financial value determines the convenience of exercising them or forward (or term) that, in both cases, imply transforming these concepts to foreign currency are available.
   The contracts referred to in the preceding points must be contracted with local financial entities whose rating is "L3" or higher - according to the minimum guidelines contained in the Annex to Communication "A" 2229- and/or with foreign counterparties that have a rating of "A" or higher, according to Moody's Investors Service or Standard & Poor's Corporation."

We clarify that holdings for trading or financial intermediation operations will be reflected separately, according to the currency of issuance of the national public securities, in accounts named "Public Securities - Holdings for trading or intermediation operations", valued in accordance with the current accounting regulations for public securities with quotation (code 121003 and complements). The decision to incorporate holdings into investment accounts or available for sale that must be disclosed in the balance sheets for October of the current year must be informed - with the other implications established in point 1.5. of the preceding resolution - no later than together with the presentation of the respective monthly balance. Finally, we point out that it has been decided to extend the deadline for the presentation of the monthly balance sheets for October 1994 (Code 42, exclusively) until the date that will be informed separately. We salute you very respectfully. BANCO CENTRAL DE LA REPUBLICA ARGENTINA Alfredo A. Besio Miguel A. Kiguel Manager of Standards for General Manager Financial Entities Area of Economics and Finance